Think: volatile IPO, pre-pricing. Lots of ambiguity. Is this company AMZN? Or is it uh...Groupon. Or worse?
The offering price is the price the bankers are setting such that buyers...buy. So if a given company is going to come public by selling 10 million shares at an offering price of $20, then the company itself might keep $19.50 times 10 million, or $195 million; the bank keeps 50 cents a share, or $5 million. If the IPO is hot, then the first publicly traded print might be like $32.40 and go up from there. That price doesn't matter to the company, however. They've already sold their 10 million shares at $19.50, "under pricing" themselves by a dozen bucks or so a share.
And this whole notion of under pricing is kind of a kitschy click-bait-getting thing from journalists who don't really live inside or understand the trenches of how companies actually come public. In fact, IPOs generally "need to be" under priced so that there is certainty of getting all the shares placed, and so that if the markets are choppy, the IPO price doesn't trade below the offering price. If it does, then original buyers who paid $20 will be angry and not return when the stock is at $18 or $15 or $10. Huge work then to repair damaged relationships.
So, in fact, in most cases, it's the company itself who leans conservative in the pricing of their IPO, because they'd rather raise a bit less money, sell a few fewer shares, but have a public currency...than wrest evey penny from the offering and then go into a soft market (through no fault of their own) and have their IPO be quickly underwater, and lose sponsorship from the Street. If they get greedy later, they can always sell more shares in a secondary offering at that $32-ish price and go nuts. High-priced nuts.
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Finance: What is a tender offer?5 Views
finance a la shmoop what is a tender offer isn't that how all offers should
be made you know tenderly like like Elvis and he was the king yeah you know [Man discussing tender offers]
Love Me Tender love me shmoop this last album anyway tendering is just a fancy [Elvis dancing on stage]
semi British II word for asking and it applies most often to governments and
large corporate entities seeking bids and you know for stuff like as part of
its huge commitment to providing true diversity in communities the US [Man wearing giant foam diversity finger]
government is going to build a chain of establishments called
stocks and bonds yeah these stocks and these bonds so there will be bondage [Wooden stocks and furry bonds appear]
parlors in each of the 50 capital cities in America with opposite stylings of a
whip it tenders for offers from contractors who submit bids to build the
building shells the noise reducers the you know leather storage areas the first
aid facilities yeah and it happens and so on why is this hole tender process [Man bent over a table and doctor walks away]
needed like why can't the government just hire their buddies to go out and
build it well if they had no guidelines or um discipline him then the room for
corruption in all kinds of misappropriation and it would be too big [Uncle sam stood beside woman on construction site]
and arrests would be made and cuffs would come out and file not the fun kind
so there's a process the government tenderly asks for bids and then people
you know submit well the same applies to corporate America things like takeover [Men shaking hands]
bids like good I don't know Google's paying all cash to buy Netflix they make
a tender offer at 300 bucks a share to buy all the shares out there why is it
tender well because Google is gently asking and hoping and praying that [Google hugging Netflix stock]
Netflix shareholders will in fact sell them their shares for 300 bucks apiece
once Google has enough share as well they effectively own the company
remember the common shares both the board and they can do with it what they
want hopefully those Netflix errs will you know behave these guys really just [Man smashing TV]
need to Netflix and chill
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